Policy rate kept steady at 3%
The Monetary Policy Committee yesterday held the policy rate steady at 3.00 per cent as inflation was still under control, but noted that the minimum-wage increase and rising oil prices could intensify upward pressure on prices.
"The wage increase could lead to rises in expenses and goods prices, as a wage-price spiral effect. Looking forward, crude-oil prices, which could continue rising, and domestic demand could be issues," said Paiboon Kittisrikangwan, assistant governor for the Bank of Thailand and secretary of the MPC.
The committee struck a balance between positive and negative economic trends.
"The risks from the global economy have decreased and the recovery in the Thai economy is gaining momentum. Simultaneously, inflationary pressure has edged up because of prices of oil and goods," he said.
Core inflation, instead of headline inflation, is being used this year as the target of monetary policy under an agreement between the central bank and the Finance Ministry. The target range is 0.5-3.0 per cent this year.
"We will discuss the new framework [use of core inflation] again next year. Now, we’re monitoring both," headline and core inflation, he said. The latter measure excludes volatile items such as food and energy.
When the Thai economy is reaches its full potential, likely in the third or fourth quarter of this year, public and private consumption and investment could stoke inflation, he said.
From the central bank’s preliminary study, the increase in the minimum daily wage to Bt300 on April 1 is expected to increase headline inflation by 0.2 percentage point and core inflation by 0.3 percentage point, said Songtum Pinto, a senior director of the central bank.
Every US$10 climb in crude-oil prices is forecast to boost headline inflation by 0.4 percentage point and core inflation by 0.1 percentage point.
The central bank raised its price projection for Dubai crude oil to US$115 per barrel from $103 for 2012. Its 2013 estimate is now $110 per barrel, up from $110.
The monetary-policy makers revised their 2012 forecast for headline inflation to 3.4 per cent from 3.2 per cent on the higher prices of crude oil and goods. This year’s projection for core inflation was raised to 2.4 per cent from 2.2 per cent.
This year’s estimate for growth in gross domestic product was upped to 5.7 per cent from 4.9 per cent because of last year’s low base. Domestic demand was cited as the main engine of growth this year.
